Notes
1 The whole body of work of Roncaglia is food for thought concerning methodological and analytical issues including his seminal work, The Wealth of Ideas (Roncaglia 2005a). It is also worth reading Why the Economists Got It Wrong (2010), “What Do We Mean by Anglo-American Capitalism?” (2011), and Il mito della mano invisibile (2005b).
2 Many phenomena that have a causal direction from the standpoint of an individual operator present reversed causality at the aggregate level. A few well-known simple textbook examples can be cited: deposits determine loans for individual operators, while the opposite is true at the aggregate level; the same goes for the saving-investment relationship. What appears to be true in isolation may not be true in the aggregate, as, for example, also occurs in the relationship between decreases in wage costs and increases in profits for single firms, but not possibly for the economy as a whole. And so on.
3 This is a perspective that is opposite to the mainstream one. The latter states that one can draw inference with regard to the economy as a whole by studying a “representative” single agent (depicted as similar to the others, as abstract and utility maximizing). It relies on a mechanistic (econometric) analysis of aggregate phenomena (built on a database extended over a considerable length of time) for testing deductively derived propositions, as if the economy were stable and maintained identical parametric relationships over time. In that perspective, techniques and good software, not a thorough knowledge of reality, are needed.
4 “He must be mathematician, historian, statesman, philosopher in some degree” (Keynes, 1933, 173).
5 This implies that no variable is parametrically bounded in its movements and values to other variables, but is often determined by beliefs and conventions that dominate the behavior of operators.
We can call this approach a “conventionalistic” one (meaning, for instance, that a given level of the exchange rate or inflation is compatible with a wide range of shapes and levels of the yield curve or vice versa). In this alternative analytical context, mathematical relations, formalized in a model, do not give a demonstration of anything, but can be sometimes a useful exercise that translate into the form of a model the ideas developed independently from the use of formal analysis; it can help (possibly) to extract the essence of these ideas and explore the ultimate abstract consequences, but the place of that model is in the Appendix of an essay. However, the exercise can be useful as long as one does not lose sight of the fact that it is a reductive operation, which can only be based on mechanistic relations and standardized reactions, and reduce to risk what is uncertainty (that is, the immeasurable as it were measurable).6 These issues of method can be deepened in the essays contained in Becattini (1991a), especially in the essays of Becattini, Kregel, and Biasco. See also Roncaglia (2009).
7 I quote here as simple examples some basic spirals, such as wages-prices, inflation-exchange rate, or speculative bubbles, but many others can be brought out concerning more structural variables. Induced changes occurring during these spirals persist when they end. An inflationary process induces financial innovations (and redistribution of income); in a speculative bubble on the equity market firms strengthen their capital structure at low cost; a spiral of the exchange rate displaces sectorial production irreversibly, and so on. As the scale of a phenomenon increases, it reaches thresholds at which the operators’ perception of it changes and therefore their behavior toward the phenomenon itself does, too. The conditions under which a spiral ends, can also bring irreversible changes.
8 If any decision implies a sequence of phases—that the perception of a situation leads to the evaluation of possible alternatives of actions, then to the decision itself, and finally to the application of a decision—in the mainstream approach the crucial phase is the third (the decision, i.e., the choice), while the others do not present problems. In other words, for mainstream economics what is crucial is which decision (rational and utility maximizing) is taken, once that the alternatives are evaluated on the basis of a complete information, which is perfectly deductible from reality. In a vision that is not mainstream, the crucial phase is the first, and this makes the others poorly definable.